Buy now, pay later: Companies must comply with US credit card laws

Consumer Financial Protection Bureau said Wednesday that customers in the growing “buy now, pay later” industry enjoy the same federal protections as credit card users.

The agency issued a so-called “interpretive rule” that essentially treats BNPL lenders the same as traditional credit card providers under the decades-old Truth in Lending Act.

This means that in an industry currently dominated by fintech companies such as ConfirmKlarna and PayPal — Must issue refunds for returned products or canceled services, must investigate seller disputes and suspend payments during those investigations, and must provide invoices showing fees.

“Whether a consumer uses a credit card or uses Buy Now, Pay Later, they are entitled to important consumer protections under long-standing laws and regulations that are already in place,” CFPB Director Rohit said in a press release. Chopra.

The CFPB, which won a decisive Supreme Court victory last week, has aggressively taken on the U.S. financial industry by issuing rules that cut credit card late fees and overdraft penalties. An agency created after the 2008 financial crisis. started an investigation BNPL industry at the end of 2021.

The use of digital installment loan services has increased sharply in recent years, with volumes growing tenfold from 2019 to 2021, Chopra said during a media briefing. One of the CFPB’s problems, he said, is that some users end up with more debt than they can handle.

“Buy now, pay later is now a major part of our consumer finance market as these loans provide a meaningful alternative to other options for consumers,” Chopra told reporters. “The CFPB wants to ensure that these new competitive proposals do not provide an advantage by circumventing long-standing rights and responsibilities under the law.”

It is unclear how many BNPL providers do not comply with refund and dispute resolution requirements; on the website for Confirmfor example, there is pages for both types of activities.

While the CFPB acknowledged that many BNPL players offer these services, the new rule will ensure they are applied consistently across the industry, a senior agency official told reporters.

The new rule will take effect in 60 days, and the agency is now accepting public comments on it, the official said.

BNPL providers have been anticipating greater regulation for some time, including efforts to enforce existing card regulations across the industry. In March Klarna posted a message arguing that its interest-free product is less risky for customers than credit cards, which can often have high interest rates, and therefore require less oversight.

“Instead of trying to shoehorn BNPL into an outdated credit card system that does little to actually protect consumers, leaders in Washington should design and implement a BNPL system proportionate to the risk it poses,” Klarna said at the time.

In a statement issued Wednesday, Klarna called the CFPB’s move a “significant step forward” in regulating BNPL, adding that it already adheres to standards regarding refunds, disputes and payment information.

“It is puzzling, however, that the CFPB overlooked the fundamental differences between interest-free BNPLs and credit cards, whose entire business model is based on locking customers into a cycle of paying sky-high interest rates month after month,” a Klarna spokesperson said. .

The industry’s position raises the possibility that, like other financial players, including payday lenders, BNPL companies could challenge the CFPB rule by suing the agency.

The CFPB’s rule capping credit card late fees at $8 per incident, which was supposed to take effect this month, was recently challenged and stayed by a federal judge.